IMPORTANT POINTS
When the Tribunal passed the orders, the decision in Mavilayi (supra) was not in existence. But, the decision in Chirakkal (supra), was then in force. In view of the decision in Chirakkal (supra), it was not necessary for the Tribunal to consider the effect of the circular issued by the department. A circular issued by the department is not binding on the Income Tax Appellate Tribunal also.

JUDGMENT :

R.Narayana Pisharadi, J

The appellants/assessees are Co-operative Societies registered under the Kerala Co-operative Societies Act, 1969. The issue raised in these appeals relates to their claim for deduction under Section 80P(2) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act').

2. The claim for deduction under Section 80P (2) of the Act made by the appellants was denied by the Assessing Officer by treating them as Co-operative Banks and not as Primary Agricultural Credit Societies. Aggrieved by the assessment orders thus passed by the Assessing Officer, the appellants filed appeals before the Commissioner of Income Tax (Appeals). The appellate authority, by following the judgment of this Court in Chirakkal Service Co-operative Bank Limited v. Commissioner of Income Tax : 2016 (2) KHC 726: 2016 (2) KLT 535, allowed the appeals and directed the Assessing Officer to grant deduction under Section 80P (2) of the Act, on the ground that the assessees are classified as Primary Agricultural Credit Societies by the Registrar of Co-operative Societies.

3. The revenue challenged the orders passed by the first appellate authority in second appeals filed before the Income Tax Appellate Tribunal, Cochin Bench. The assessees filed cross objections supporting the orders passed by the first appellate authority, by making reference to a circular issued by the department. The Tribunal also relied upon the decision of this Court in Chirakkal Service Co-operative Bank Limited (supra) and dismissed the appeals filed by the revenue. The cross objections filed by the assessees were also dismissed on the ground that they only supported the view taken by the first appellate authority. Though the decision of the Tribunal was in their favour, the assessees have filed these appeals against the orders passed by the Tribunal, raising only the grievance that the Tribunal has not considered the effect of the circular issued by the department in the matter.

4. We have heard learned counsel for the appellants and also the learned Standing Counsel for the Income Tax Department.

5. Section 80P of the Act deals with deduction in respect of income of co-operative societies. Sub-section (1) of that section provides that where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in sub-section (2) of that section, there shall be deducted, in accordance with and subject to the provisions of Section 80P, the sums specified in sub-section (2) thereof, in computing the total income of the assessee. Sub-section (4) of Section 80P provides that the provisions of Section 80P shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.

6. In Chirakkal Service Co-operative Bank (supra), a Division Bench of this Court held that, societies having been classified as Primary Agricultural Credit Societies by the competent authority under the Kerala Co-operative Societies Act, it has necessarily to be held that the principal object of such societies is to undertake agricultural credit activities and to provide loans and advances for agricultural purposes, the rate of interest on such loans and advances to be at the rate to be fixed by the Registrar of Co-operative Societies and having its area of operation confined to a village, panchayat or a municipality and as such, they are entitled for the benefit of sub-section (4) of Section 80P of the Act to ease themselves out from the coverage of Section 80P and that the authorities under the Act cannot probe into any issues or such matters relating to such societies and that the Primary Agricultural Credit Societies registered as such under the Kerala Co-operative Societies Act and classified so under that statute, are entitled to such exemption.

7. Chirakkal (supra) now stands overruled by the decision of a Full Bench of this Court in Mavilayi Service